India, the third-largest emitter of CO2 in the world, has made great strides to increase its renewable-energy capacity over the last several years, particularly solar power.
Almost everyone in India now has access to electricity. With renewables much cheaper than coal, adding more green energy to the grid will greatly benefit its society.
The government has set an ambitious target of 500 gigawatts (GW) from renewable energy by 2030 (see Chart 1), including 280GW from solar and 140GW from wind power.
In 2022, India’s renewables capacity stood at around 163GW, much lower than its high-CO2-emitting counterparts, China and the US, which have installed capacities of 1,063GW (2021) and 385GW (excluding pumped hydro, 2022) respectively.
To support the adoption of renewables, the government has implemented supportive policies for the renewables sector and courts have upheld the legality of power-purchase agreements.
Chart 1: Still far to go to meet ambitious 500GW renewables capacity target
India’s power problem
India has a rapidly growing economy and population. However, this is likely to increase with an expanding middle class and an ongoing reliance on coal.
Furthermore, with its current power deficit, India is scrambling to meet increasing power demands given domestic coal shortages and amid extreme heat conditions that are becoming more frequent.
Blackouts are putting pressure on the government to rapidly expand its renewables capacity as it already imports huge amounts of coal – the most carbon-intensive fossil fuel – to supplement domestic supply.
Coal imports hit a record high in June last year – some 25 million tonnes of coal, with 19.6 million tonnes coming from thermal coal – an increase of around one-third compared to the same period in 2021.
In the push to accelerate renewable energy, the issue of land rights is an area that’s potentially overlooked by many investors. Reputational damage, adverse media coverage and project delays are all risks that can arise from these land conflicts. Furthermore, many investors are aware of corruption concerns in this space.
Who owns the land?
With India’s ambitious renewables-capacity target, vast quantities of land are required – particularly for solar parks. To give some perspective, the Bhadla solar park in Rajasthan, one of the largest in the world, spans thousands of hectares with a capacity of over 2GW.
Solar parks are mostly concentrated in the north-western state of Rajasthan, and to a lesser extent its neighbour Gujarat, where the sun’s intensity is highest. Some of the land being allocated to solar-park development was previously used by local communities to raise animals and grow crops that are critical to their survival.
This common land is often referred to as ‘orans’ by locals. Although these orans have been used for generations, the communities using them do not have any legal ownership of the land (a common issue in India).
The government has classified some of this land as wasteland. But this has led to potential gaps in providing fair compensation to local people for its use, which includes sites for renewable-energy production.
Many farmers who do own land only own small plots and lease more from the government. But these are often informal agreements and therefore the farmers have limited access to benefits such as credit, insurance and subsidies.
In 2022, protestors from Jaisalmer in Rajasthan moved to have the orans recognised as local ‘commons’ and categorised as ‘forest’ to be marked for conservation. There had been no cases of similar land being classified as a forest despite a Supreme Court directive in 2018, which recognised the importance of orans (and they could be deemed ‘forests’ earmarked for protection).
In a village near Desert National Park in Rajasthan, a company had to stop construction of a wind park to comply with a court order due to concerns over local wildlife. But it had left infrastructure on the land. This rendered the land unusable for the local community, while leaving uncertainty around further development. Local communities often cannot afford to take matters to court, which may lead to some conflicts being addressed through informal negotiations and payoffs.
India's push to digitise land-rights records should help drive progress in tackling some of these issues, although the efforts could face headwinds with offline records sitting across various government departments. Consideration should be given in the digitisation process to prevent further marginalisation of those unable to easily access digital platforms.
Company engagement is essential
Corporate engagement and due diligence are important avenues investors can use to help mitigate risk and facilitate change. Investors can engage with renewable-energy developers and set out clear expectations on land-rights issues, including:
- The company is aware of land-rights risks and has policies to address concerns
- The company ensures that the voices of local people are heard
- The company delivers benefits to local people
We’ve identified four stages of land procurement best practice:
Best practices in the procurement of land
Stage 1: Procure dryland or non-agricultural land where limited or no cultivation is being done and located at a minimum distance away from local villages to ensure no risk of relocation or resettlement; any required land status conversions do not lead to loss of livelihoods (especially in a lease model where landowners are compensated on a recurring basis).
Stage 2: Companies should conduct land title searches that cover the last 30 years using in-house and third-party legal counsel who also carry out due diligence to ensure there’s no outstanding land litigation or encumbrance of property.
Stage 3: Payments to be made directly into landowners’ bank accounts, with no cash transactions or transfer of payment via an intermediary; fair and transparent compensation – land purchase price is based on similar market transaction rates, lease rental payments are based on crop yields, paying a premium above income from farming the land with annual increase during the lease.
Stage 4: Aim to ensure preservation of livelihoods through corporate social responsibility activities, education, skills training and employment opportunities; promote economic mobility in local communities.
Furthermore, encouraging transparency allows companies to demonstrate they have properly assessed these concerns in their plans. There must be free, prior, and informed consent (FPIC) from existing landowners and land beneficiaries for the approval of such projects.
Some companies operating here are acutely aware of these issues and are taking clear measures to ensure land is obtained fairly.
The considerable growth in renewables in India provides investors with a big opportunity to support the energy transition. However, engaging on issues such as land rights is essential (with some companies being better at this than others). In-depth and ongoing due diligence is also vital.
At abrdn, we regularly engage with the renewables companies we invest in to ensure land has been procured fairly, along with several other sustainability risks, such as water usage and biodiversity.
Our engagements across the sector enabled us to identify companies that were not only aware of the risks but have been proactive and open to engaging with investors to address the issue of land rights.
For example, some companies lease land from the original landowners and employ the local communities onsite. This not only allows original landowners to retain titles over the land, but also provides consistent income.
Additionally, managing risks around land does not simply end at the land-procurement stage. Safeguarding the interests of local communities requires companies to establish and maintain sound and long-lasting relationships with landowners and surrounding land beneficiaries.
Importantly, addressing land-rights issues will benefit the communities that are affected by the transition to renewables and support a more sustainable society. Investors should not underestimate the influence they have in facilitating a just transition.